TCC Cancellation
and Revalidation Starting Aug 1
THE Department of Finance (DOF) has issued a new order requiring
the special revalidation of all outstanding Tax Credit Certificates
(TCCs) from August 1 to December 31, 2006. Starting August
1, 2006 all outstanding TCCs issued by the Bureau of Internal
Revenue (BIR), the Bureau of Customs (BOC), and the DOF One
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center
(OSS Center) shall be deemed automatically retired, recalled
or cancelled and shall no longer be accepted for payment for
any outstanding tax or duty liability of the respective TCC
holder.
Department Order No. 20-06 (DOF Order No. 20-06) was issued
in June of this year for the purpose of conducting an inventory
and for determining the volume and value of all outstanding
TCCs issued. The order also seeks to prevent the use of expired,
stolen, fake, tampered or recycled TCCs. It will be remembered
that a few years back, the government was able to uncover
the illegal issuance of TCCs amounting to hundreds of millions
of pesos. While criminal cases have accordingly been filed
in court, no conviction has yet resulted from such cases.
Issuance of TCCs / Duty Drawback. Under existing laws, TCCs
may be issued by the concerned agency on various grounds such
as excess or overpayment of taxes or duties or refund of duties
paid on re-exported articles. For importers and exporters
in particular, the provisions of Section 106(c) of the Tariff
and Customs Code of the Philippines (TCCP), as amended provide
the basis for allowing drawback on duties paid on imported
raw materials upon exportation of products manufactured from
such previously imported materials. The requirements under
the above-mentioned section are as follows:
a) Payment of duties on imported raw materials;
b) Actual use of such materials in the production or manufacture
of the products exported;
c) Exportation made within 1 year after importation of such
materials; and
d) Application or claim for drawback filed within 6 months
from date of exportation.
There are also many other grounds for securing tax or duty
refund as provided under the numerous laws providing fiscal
incentives (e.g. Omnibus Investment Act) or as a result of
a final judicial order requiring the issuance of a refund
or drawback.
TCCs for Revalidation. The TCC Revalidation Program provided
under DOF Order 20-06 refers to the cancellation and replacement
of new TCCs for the following outstanding TCCs issued by the
following agencies:
a) The BIR under existing revenue laws, special laws, international
agreements and final judicial orders;
b) The BOC under the TCCP, as amended, and final judicial
orders;
c) The DOF OSS Center under the Omnibus Investment Act and
other existing laws;
d) The OSS-Center and the BIR under Section 112 of the National
Internal Revenue Code, as amended; and
e) The OSS-Center and the BOC under Section 106 of the TCCP,
as amended.
New TCC Form. Effective August 1, 2006, all revalidated TCCs
will be issued a new and updated TCC form with enhanced security
features. The new form will clearly indicate the legal basis
of the issuance, the recommending/processing/investigating
office and the approving authority of the agency or bureau
concerned. The period of evaluation shall only be from August
to December 2006, thereafter, all TCCs not validated or submitted
for validation will likely be deemed as cancelled.
The concerned agencies (BIR, BOC and OSS Center) are required
to prepare separate inventories of all unutilized TCC forms
in their possession, custody and control, which shall be disposed
of in accordance with the pertinent law and rules. The agencies
shall likewise prepare their separate reports on the inventory
and disposition of unutilized TCC forms, which shall be submitted
to the Secretary of Finance not later than August 31, 2006.
Implementing Guidelines. Under DOF Order No. 20-06, the issuing
agency, such as the BOC, shall promulgate specific guidelines
necessary or appropriate to expedite the processing of applications
for revalidation. The guidelines should also provide for the
mechanics for the proper surrender of all unutilized TCC forms
and the surrender of outstanding TCCs under the possession
or custody of the valid holder. To date, customs has yet to
issue its own guidelines on how to process application for
revalidation of TCCs. In the meantime and pending approval
of the application for revalidation, importers will not be
allowed to use their TCCs to pay taxes and duties on their
importation.
For those in the trading community, application for the issuance
of a TCC is in itself a costly and tedious process. With increased
revenue targets, customs has in fact been discouraging the
use of TCCs for payment of import taxes and duties. On the
occasion that a TCC is cleared for usage by customs, importers
are normally required not to fully apply the import taxes
and duties on the TCC, with a portion of the obligation paid
in cash. In the coming months, we should expect customs to
increase their revenue collection while importers are yet
revalidating their TCCs. In the meantime, cash-strapped importers
will have to secure credit lines from their banks to finance
their ongoing imports.
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RP's Bilateral
and Regional Trade Agreement
IN 1995, the Philippines formally joined the
World Trade Organization (WTO). After years of nego-tiations
and debate, about a hundred forty countries finally agreed
to have an international treaty that will govern the cross-border
exchange of goods and services. The WTO instrument, however,
involves several agreements covering a wide array of trade
and trade-related activities. Of particular significance to
the international trading community are the covenants pertaining
to customs valuation, tariff restructuring, dumping, countervailing,
safeguards, rules of origin, and the intellectual property
rights. At the regional level, the implementation of the ASEAN
Free Trade Area (AFTA) Common Effective Preferential Tariff
(CEPT), the ASEAN Industrial Cooperation (AICO), and the ASEAN
Investment Area (AIA) agreements has been ongoing.
For companies engaged in cross border transactions, how will
these developments impact on their trading businesses? Will
it create more business? What are the possible risks and threats
involved?
RP's Bilateral and Regional Trade Agreements. To date, the
Philippines has entered into at least 38 bilateral and regional
free trade agreements (FTAs) and memorandum of understanding
(MOUs) with various countries and regional groups with the
view of expanding the country's trade and economic relations.
In addition, the country is directly or indirectly engaged
in various stage of negotiation or implementation of the following
bilateral and regional (and cross regional) agreements:
ASEAN+3. Still in the formation stage, the establishment
of an ASEAN, China, Japan and Korea free trade area will accordingly
create the largest free trade area in the world. The agreement
will also cost the US economy billions of dollars, while netting
a much larger gain for Asian economies.
ASEAN Economic Community (AEC). AEC, a European-style single
market with free flow of goods, people and services among
the ten-member countries, is being accelerated towards full
implementation by 2020, or earlier as some members want.
ASEAN-China Free Trade Area (ACFTA). Under this agreement,
tariffs on some 4,000 type of goods will be reduced between
0 and 5% by 2010 for the six most advanced ASEAN members,
with tariffs for certain sensitive goods (sugar, iron, steel
and car) not subject to steep reductions. This free trade
has a combined population of 1.7 billion.
ASEAN-India Partnership for Peace. The framework agreement
plans to establish a free trade area by 2011 for the five
most advanced ASEAN members, with the Philippines moving the
date to 2016.
Japan Philippines Economic Cooperation Agreement (JPEPA).
Originally scheduled for implementation last year, negotiations
have hit a snag with regard to the migrant sector (workers)
of the agreement. The Philippines has likewise been lobbying
for improving market access of its agricultural products to
Japan.
Enterprise for ASEAN Initiative (EAI). EAI is a US initiative
to forge direct bilateral trade agreements with individual
members of ASEAN. Singapore has entered into a bilateral agreement
while Thailand and Malaysia are currently negotiating. Indonesia
and the Philippines will reportedly soon follow. A US-RP agreement
should accordingly benefit the agriculture (sugar, fresh and
canned fruits), electronics, garments and textile and BPO
industries.
There are gainers and losers in free trade agreements, with
the consumers generally benefiting the most. For the least-developed
countries, the agreements have not spurned the growth of the
country's exports, as compared to imports. With regard to
the ASEAN-China free trade area, there are fears that inexact
statistics and economic figures as to the Chinese economy
may mislead ASEAN countries into making decisions as to the
implementation of the agreement. For one, illegal economic
activities involving widespread smuggling may indicate higher
trade figures for imports from China (e.g. textiles and clothing,
high-tech gods, shoes and toys). A free trade area with China
will definitely flood the ASEAN countries with Chinese goods,
to the detriment of industries (and countries) that are incapable
of generating the skills and technology necessary to compete
with developed industries of China and the more developed
economies of ASEAN.
Risks and Threats to a Free Trade Market. Initial studies
have also shown that AFTA has mainly benefited inter-industry
trade arising from out of the vertically-integrated network
of multinational corporations. This is probably evidenced
by the fact that many of the top Philippine importers are
transnational companies with a regional manufacturing network.
Many of these companies are in the consumer goods, telecom,
automotive, chemicals, electronics, processed foods and pharmaceutical
industries. With an expanding market, the concern for these
companies is the protection of the market and the supply chain.
In a free trade environment, what are the threats to ensuring
the supply of goods to the market?
For one, the increasing use or misuse of valuation rules
for imported goods has become the bane of many importers.
In the Philippines, local industry representatives are allowed
by customs to get involved in the valuation process of imported
good. Second, domestic industries affected by sudden import
surges have increasingly turned to the application of safeguard
duties as a trade remedy against imports (e.g. cement, tiles,
glass, etc.). Third, some government agencies have issued
stringent rules for the issuance of import permits and licenses
which effectively create technical barriers to trade. Lastly,
labeling, marking and rules of origin of imports are likewise
being questioned by domestic industries.
Back to top
DOF issues revised
rules for customs brokers
AFTER months of lobbying from various opposing
industry groups, the Department of Finance (DOF) has finally
approved the proposed amendments to the existing rules for
customs brokers in what is perceived to be an attempt to finally
provide a "win-win" solution to the issues and controversies
hounding the implementation of Republic Act (RA) 9280, otherwise
known as the Customs Brokers Act of 2004 <i>(see attached
CAO)</i>.
CAO 3-2006-A now provides the revisions to certain provisions
of CAO 3-2006, which originally provided the rules and regulations
governing the accreditation of customs brokers with the Bureau
of Customs (BOC).
As provided in the revisions, only licensed customs brokers
duly accredited by the BOC (as an individual or as a partner
of a general professional partnership) may sign the import
and export entries. The implication is that the accreditation
of existing customs brokerage corporations are now revoked
and as such, corporations are prohibited from signing and
filing import and export entries under their corporate name
and using their principal or alternate customs brokers. In
addition, customs representatives of customs brokerage corporations
may not be accredited by the BOC unless the company is also
registered as a freight forwarder with the Philippine Shippers
Bureau (PSB) or the Civil Aeronautics Board (CAB).
Freight forwarding corporations registered with PSB or CAB
are, however, allowed to employ individual customs brokers
(duly accredited by BOC under the new rules) to sign the import
and export entries in their individual capacity. Freight forwarders
are also allowed to employ their own customs representatives
to process the import and export entries signed by the individual
customs broker (or partner) who is accredited by BOC.
The revised rules have also provided for the accreditation
of a General Professional Partnership (GPP) of licensed customs
brokers. A customs broker may thus be accredited by the BOC
either as an individual or as a partner of the GPP.
International Best Practices
While the new rules are now more aligned with international
best practices, this early critics have already raised their
objections on the amendments on the ground that the revisions
expressly violate the corporate prohibition clause provided
in RA 9280. There are also observations that the revisions
have largely favored the multinational logistics corporations
to the detriment of small customs brokerage companies and
importers processing their own shipments.
It will be noted that the Philippines recently announced
its intention to accede to the Revised Kyoto Convention (RKC)
which provides the international best practices and standards
for customs rules and procedures. Under the convention, the
government has the right to provide the conditions on who
can be "declarants" in the import or export entries.
The declarant is responsible to customs for the accuracy of
the particulars given in the import declaration and for the
payment of the duties and taxes, if any. The convention also
provides that importers or declarants may transact with customs
either directly or by designating a third party to act on
their behalf.
While the new rules now effectively provide that only importers
and individual customs brokers are authorized as "declarants"
in the import and export entries, importers and individual
customs brokers are, however, allowed to process their entries
through the customs representatives, whether employed by the
individual customs broker (or professional partnership) or
by a freight forwarder. Unfortunately, and contrary to the
standards provided in the Revised Kyoto Convention, the new
rules disallow importers from employing their own customs
representatives to process their import and export entries
and to transact business with customs.
Unresolved Issues, New Concerns
While the new rules seem to have addressed the immediate concerns
of the freight forwarding industry, many industry leaders
have noted that the controversies and implementation issues
remain. In fact, some freight forwarders are already preparing
for the possibility that complaints for violation of RA 9280,
both administrative and criminal, will be filed before the
Professional Regulatory Board for Customs Brokers and the
regular courts against company officials and their employed
individual customs brokers once these freight forwarders file
and process their import and export entries under the new
rules.
There is also the possibility that the CAO will be questioned
in court by some sectors for allegedly violating the corporate
prohibition clause of RA 9280.
New issues have likewise been raised as a result of the revisions.
For one, the new rules do not provide for the procedures and
qualification requirements for the accreditation of customs
representa-tives employed by freight forwarders. With regard
to the filing of export entries, the new rules now require
exports (except those in the export priority industries) to
be signed by customs brokers even if the current export declaration
forms and existing procedures do not allow both importer and
customs broker to sign simul-taneously in the export declaration
whether filed manually or electronically.
For importers previously filing import and export entries
on their own and without the assistance of individual customs
brokers, the new rules clearly provide that only customs brokers
and freight forwarders (and their customs representatives)
may transact with customs. Obviously, this will result in
additional costs for many importers and exporters who have
previously dealt with customs through their own employees
and representatives.
CAO 3-2006-A will become effective immediately after its
publication in newspapers of general circulation.
Back to top
Risks and Threats
to World Trade
IN our article last August 14, 2006 (RP's Bilateral
and Regional Trade Agreements), we provided an update on the
current state of play of the country's various trade agreements,
with each agreement having its own separate set of trading
rules. We also discussed in brief possible risks and threats
to a free trade market.
In the succeeding paragraphs, we will elucidate more on what
exactly are these threats and risks that may threaten the
free flow of goods and cause disruptions in the company's
supply chain.
Uniform Rules, Varying Interpretations. One bank aptly puts
it, "think global, act local". For those doing customs
and international trade work, this mantra however has become
sort of a nightmare. While international agreements (e.g.
World Trade Organization [WTO] and Asso-ciation of South East
Asian Nations) provided for uniform rules on various global
trade matters such as valuation and classification of goods,
the complexity and technical nature of such rules have resulted
in varying interpretations at the local level. The reasons
are multifarious. For some, it can be poor understanding of
the technical rules. For others, it can be pressure from top
government officials to increase revenues or to protect domestic
industries from the influx of foreign goods.
The increasing use or misuse of valuation and classification
rules on imported goods has indeed become the bane of many
importers. In the Philippines, local industry representatives
are not only allowed by customs to get involved in the valuation
process of imported goods but worse, domestic industry representatives
are allowed access to otherwise confidential information regarding
the imported articles. This is clearly disallowed under existing
Philippine laws and regulations (including the WTO Agreement
on Customs Valuation) and yet, due to political expediency,
this practice has been allowed to continue for many years.
With regard to classification rules, there had been recent
instances when tariff rulings issued by the Tariff Commission
were disregarded by the Bureau of Customs (BoC), again due
to pressures from politically influential domestic industry
groups.
There are many ways for providing legitimate barriers to
trade; for example, by increasing tariff rates within bound
rates, but not by misinterpreting or misapplying existing
rules on valuation or classification against imported articles.
Dumping and Safeguard Measures. Another threat to those importing
various articles, whether raw materials, intermediate products
or finished goods, is the growing use of trade remedy measures
against imported articles. Many local industries have long
been affected by the influx of cheaper and better quality
goods imported from more economically efficient suppliers
located abroad. Some of the local industries have been able
to adjust while others have not. Some others have aggressively
prevented the entry of cheaper goods through the imposition
of safeguard and dumping duties.
Similar to dumping and countervailing measures, safeguard
measures are one of the trade protection measures available
under the WTO. Until recently, safeguards were seldom used
as most governments previously preferred to protect domestic
industries through bilateral negotiations with other countries.
The laws governing dumping and safeguard measures are provided
under the WTO framework particularly to prevent countries
"abusing" their right to protect domestic industries.
These trade remedy measures are not meant simply as a protectionist
measure to be imposed in favor of economically inefficient
domestic producers.
In reality, however, and as shown by recent cases, the imposition
of dumping or safeguard measures has been more of a political
act rather than a decision made from an international trade
perspective.
Customs Audit of FORM D / Rules of Origin. Rules of Origin
(ROO) refer to the laws, rules and regulations of one country
to determine the country of origin of imported goods. In principle,
the origin of the article can affect tariff rate, tariff preference,
safeguards or dumping duty, import quota, admissibility, marking
and, in some countries, procurement by government agencies.
Rules of origin may either be preferential or non-preferential
and there are three basic methods for determining origin.
The growing trade among ASEAN countries has resulted in customs
authorities starting to scrutinize the issuance of preferential
ROO such as the AFTA Form D Certificate. To date, there have
been many instances when the AFTA Form D issued by Philippine
authorities was questioned at the country of exportation (e.g.
Indonesia, Malaysia or Thailand). Similarly, the Philippines
has on many occasions raised issues on the Form D Certificates
issued by other ASEAN countries.
Considering that each free trade agreement will have its
own ROO, shipments covered by preferential rules of origin
must ensure that the grant of preferential rates strictly
qualifies with the origin methods. Failing that, both importers
and exporters run the risk of being penalized for their importations
made over a certain period.
Permits, Labeling and Marking. The WTO and most of the various
trade agreements in effect now also have specific rules governing
the issuance of import/export permits and the proper labeling
and marking of goods traded across international borders.
These rules may vary according to the trade agreement applicable
and depending on the issuing country or the type of product
involved (e.g. specific rules on marking and labeling for
food products and varying import licenses and permits applying
sanitary and phytosanitary measures). It is not uncommon for
national governments now to apply more stringent rules for
the issuance of import permits and licenses which effectively
create technical barriers to trade in favor of the domestic
industry. Again, failure to comply with such rules many not
only cause delay in customs clearance but may also result
in penalties and other sanctions.
Manila to host 7th Asia-Pacific Manning and Training
Conference
The 7th Asia-Pacific Manning and Training Conference will
again be held in Manila from November 8 to 9, 2006 at the
Hotel Philippine Plaza. Organized by the UK-based conference
specialists, Lloyd's List events, the conference will focus
on the rapidly emerging concept of "Corporate Social
Responsibility" in relation to crew welfare and sustainable
shipping practices.
"Philippine participants will find this year's event
even more relevant with it's revised format, topical debate
and increased local participation," Lloyd's List events
Conference Producer Caroline Holt noted.
The revised format will feature a pre-conference seminar on
"Quality Assured Maritime Health Services in the Philippines"
to be conducted by International Committee on Seafarers Welfare
(ICSW) Regional Coordinator Dr. Suresh Idnani and ICSW Ship
Project Coordinator Dr. Rob Verbist.
"Healthy seafarers build a healthy company and ultimately
improve profits. This conference provides a great opportunity
to present a health promotion initiative like the ICSW Seafarers'
Health Information Programme to the maritime industry,"
Dr. Verbist said.
Delegates will also benefit from the presence of 25 world
industry leaders who will analyze and review issues affecting
the manning of ships and crew training. One such speaker is
Professor Capt. Stephen J. Cross, Director of the Maritime
Institute Willem Barentsz Terschelling West in the Netherlands,
who will discuss the latest developments in maritime training
and education.
Other speakers include: Teekay Marine Services Glasgow Managing
Director and Conference Chairman John Adams, Filipino Shipowners
Association Chairman and President Carlos Salinas,International
Maritime Employer's Committee Secretary General David Dearsley,
Intertanko Managing Director Dr. Peter Swift and Australian
Maritime College President Professor Malek Pourzanjani.
Participants may register at 44(0)20 70175511 or on-line at
www.manningandtraining.com.
The writer is an international trade and customs consultant,
and a licensed customs broker. He has an Advance Certificate
in International Purchasing and Supply Management from International
Trade Centre (UNCTAD/WTO) and is an accredited trainer of
Ateneo GSB-CCE. Please contact aouvero@dlugms.com
for your comments.
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